Barclays to pay $2bn to resolve fraud claims over US mortgage misselling

Barclays has agreed to pay $2 billion, the equivalent of £1.4 billion, in civil penalties to resolve claims for fraud in the sale of residential mortgage-backed securities, the US Department of Justice said Thursday.

The US had alleged that Barclays caused “billions of dollars in losses to investors” by selling the deals in the lead up to the financial crisis.

Two former Barclays executives have also agreed to pay $2 million to resolve claims brought against them individually.

The agreement settles a civil action filed in December 2016 in which the US sought civil penalties for alleged conduct related to Barclays’ underwriting and issuance of residential mortgage-backed securities (RMBS) between 2005 and 2007.

“This settlement reflects the ongoing commitment of the Department of Justice, and this Office, to hold banks and other entities and individuals accountable for their fraudulent conduct,” said United States Attorney Richard Donoghue.

He added: “The substantial penalty Barclays and its executives have agreed to pay is an important step in recognising the harm that was caused to the national economy and to investors in RMBS.”
Barclays said the payment will be recognised in its first quarter for 2018.

The bank’s chief executive Jes Staley said: “I am pleased that we have been able to reach a fair and proportionate settlement with the Department of Justice. It has been a priority for this management team from the start to resolve these historic issues in a timely and appropriate manner wherever possible.

“The completion of our restructuring in 2017, and putting significant legacy matters like this one behind us, mean Barclays is well positioned to produce stronger earnings going forward, and to start returning a greater proportion of those earnings to our shareholders over time. Accordingly, it remains our intention to pay a dividend of 6.5 pence for 2018.”

After a three-year investigation, the US alleged that Barclays caused billions of dollars in losses to investors by engaging in a fraudulent scheme to sell 36 RMBS deals, and that it misled investors about the quality of the mortgage loans backing those deals.

The US said the bank had “systematically and intentionally misrepresented” key characteristics of the loans it included in the RMBS deals in question.

It said that in general, the borrowers whose loans backed the deals were “significantly less creditworthy” than Barclays represented, and the loans defaulted at exceptionally high rates early in the life of the deals.

Shares in Barclays were flat following the news